Event Fees

NAEA Propertymark is supporting the Law Commission in its quest for the introduction of stringent codes of practice to require developers, operators and managing agents to bring Event Fees to the attention of prospective buyers.

What are Event Fees?

“A fee payable under a term of or relating to a residential lease of a retirement property on certain events such as resale or sub-letting. Event fees may be referred to by a variety of names including exit fees, transfer fees, deferred management fees, contingency fees and selling service fees.”

The fees are common in specialist housing for older people. For instance, when someone moves to retirement housing residents can make use of services provided for the accommodation. These can include the use of the residents’ lounge, a gardener, or access to 24-hour care.

There are costs for these services, which many older people can afford to pay. However, for some older people who may be able to purchase specialist retirement housing they could be income-poor and unable to pay service charges. Consequently, they might prefer to defer payment until after the property is sold, rather than paying the whole cost through annual service charges.

To defer payment developers and the companies who manage this type of retirement or specialist property allow people to buy a long lease. This lease will include a clause that says when the property is sold a certain percentage of the proceeds of the sale must be paid back, either to the developer or into a fund for the upkeep of the accommodation as a whole. Depending on the services available, the percentage can be as little as 1% or as much as 30%.

Why Is It a Problem?

Problems arise because people aren’t always being told about the fees before they purchase the property and in many cases, buyers hear about the fee when they hire a solicitor to read the lease.

However, by this point, the buyer has already invested time and money in the purchase and it’s often too late for people to absorb further complex information about a fee that they hope will only be payable after their death. Many people also feel that they have reached the point of no return and continue with the sale.

Another problem is that the fees may be triggered by other events. These include sub-letting the property or taking out an equity release mortgage. In such circumstances, the fees can come about unexpectedly and amount to thousands of pounds.

Why Is It Important?

The issue is important for estate agents because they need to comply with Consumer Protection Regulations and consumers need to be told about event fees when they see the property advertised, visit an office or view the property. It’s also important that the issue is highlighted when the buyer puts in an offer and has it accepted.

Furthermore, downsizing is a part of the housing cycle and can allow many younger buyers with families to make use of larger properties which older people often still occupy after their own children have grown up and left or a partner may have died. Therefore with an ageing population, these types of property will become more prevalent. When purchasing retirement housing many developers of these specialised properties go through the fees with prospective buyers and many agents do the same with the lease. What’s important is that purchasers and their families realise that the longer they live in these types of property the bigger the charge is likely to be.

What Is NAEA Propertymark Doing?

In January 2016 we responded to the Law Commission's consultation on Residential Leases

In June 2016 the Law Commission of England and Wales published a progress report on their work relating to the issue of event fees. The report sets out the Law Commission’s initial policy conclusions and recommends next steps to address problems in this area.

In October 2016 we responded to the Law Commission's consultation regarding Event Fees in Retirement Properties.

Recommendations to the Government

Code of Practice

In March 2017 the Law Commission drafted a Code of Practice in order to protect consumers, preventing them from being charged in unexpected circumstances.

The draft Code of Practice limits the circumstances in which event fees can be charged and in some cases, the amount that can be charged.

The Law Commission has recommended that fees only be chargeable upon sale, if the property is being sub-let (where it is no longer the residents main home), or when there is a change of occupancy.

Where a fee is charged on sub-letting or a change of occupancy, it should be subject to a prescribed cap, totalling no more than 10 per cent of the fee which would be payable upon sale.

Disclosure document

The Law Commission proposes that clear information about event fees should be provided to customers in a standard disclosure document, and any advertisement that mentions the price of the property must specify that an event fee is also payable.

Concerns have been raised that in some cases, estate agents may fail to provide the disclosure documents to potential buyers. The Law Commission confirmed that event fees will still be enforceable as long as the landlord/operator has complied with the code of practice, even where the agent neglected to advise the consumer.

Consumers will be able to seek redress in this instance through Government approved redress schemes such as The Property Ombudsman.

Grey list

Where there is a breach of the code of practice and the event fee has been presumed unfair and unenforceable, it has been advised that the Consumer Rights Act 2015 be amended to cover a term:

of or relating to a residential lease

which has an object requiring payment

where there has been a breach of an approved code of practice

The Need for Government Action

NAEA Propertymark is currently working directly with the Law Commission and has discussed proposals for providing guidance to estate agents.

The Code of Practice is awaiting statutory approval and in the meantime, NAEA Propertymark has requested an implementation timescale along with confirmation from the Secretary of State in relation to the Consumer Rights Act being amended.

Under a Protocol agreed between the Government and the Law Commission, the Department of Communities and Local Government will provide a response to the Law Commission’s recommendations as soon as possible (but no later than within a year of the publication of the report).